While global markets rallied, MSCI India underperformed by 23–24%, largely due to persistent headwinds, tariff uncertainty and muted earnings. But Mehta believes the tide is turning.
Key macro fundamentals are now aligning:
- Inflation at a 100-month low
- Supportive RBI policy stance
- Higher fiscal room for consumers post-Budget
- Improving festive demand and GST rationalisation
“We are near the beginning of the end of downgrades,” Mehta says, predicting earnings upgrades could start emerging over the next couple of quarters.
FII selling may reverse as India looks more attractive
Foreign institutional investors have been persistent sellers, weighing on market sentiment. But Mehta believes a reversal could be ahead.
Why FII interest may return:
- India’s valuations have corrected after a year-long time and PE derating
- Strong demographics and political stability
- Improving corporate earnings outlook
- Recovery in credit growth, consumption and capex
“For a typical bull market, we need FPI support—and the case for FII flows improving is stronger now than a year ago,” he notes.
Capex, financialization & consumption: The three big themes
Mehta highlights three structural themes that he believes offer strong multi-year opportunities:1. Capital goods, engineering & power
- India’s multi-year public capex cycle has lifted industrial utilisation back to peak levels.
- Private capex is expected to revive
- Power, automation, equipment makers continue to see strong order momentum
2. Financialization of Savings
- The shift from physical to financial assets is accelerating.
- Rising demat accounts
- Booming wealth management & broking
- Growing AMC penetration
A millionaire is created every hour in India. “These proxy plays are on a long-term uptrend,” he says.3. Discretionary Consumption
GST cuts and pent-up demand are benefiting autos, hotels, jewellery and premium retail.
Stocks in these categories are reporting strong commentary and improved volume traction.
IT Sector: Value emerging, but not for everyone
IT stocks recently bounced off 52-week lows, improving their valuation appeal. But Mehta remains cautious for now.
Concerns include:
- Single-digit revenue growth, global macro uncertainty and margin pressures
- Dependence on US/Europe demand cycles
He notes IT could deliver steady 8–12% returns, suitable for conservative investors, but not ideal for those targeting 15–18% CAGR.
“It’s a classic case of growth at reasonable price versus stable, defensive returns,” Mehta says.
What could trigger the next market rally?
According to Mehta, the next leg of the market could be driven by:
- Earnings upgrades from Q3 onward
- Return of FII flows
- Improved management commentary
- Stabilizing global macros
- Domestic consumption revival
Momentum, he believes, is slowly turning in India’s favour.